Retirement Plan FOCUS Bulletin - Third Quarter
Participant mobile app
We are pleased to announce that we are preparing for launch of our mobile app for all plan participants. The App will be available in both the Apple Store and Google Play. This new feature allows participants to view their account balance at both a fund and source level; view their overall rate of return on a monthly, quarterly, and annual level; view and change their contribution amounts; and more.
We are also developing the ability to provide push notifications to plan participants, permitting us the ability to provide important customized messages to your plan participants and giving gentle nudges regarding the wisdom of preparing for retirement. Although this feature will not be available upon initial launch, this will be a future feature of the app.
We intend to have this new feature available to all plan participants early in the fourth quarter of 2020. There will be no additional fees of any kind for using the App. More information will be provided by your Relationship Manager in the near future.
Timely Submission of Payroll Files
Anyone who has experienced a plan audit conducted by the Department of Labor will tell you that two large areas of concern are the timing of payroll contributions and the segregation of participant contributions from company assets. Despite some broad “safe harbor” rules for smaller companies regarding the timing of deposits, the DOL takes a very aggressive interpretation of the guidance pertaining to employee contributions. Their position is that “as soon as administratively possible” means at the time of payroll. Their mantra seems to be “If you can pay your employees, you can deposit their contributions.”
Late contribution deposits, at a minimum, ultimately result in the employer making up lost earnings to its plan participants.
Our bottom-line advice is to submit payroll contributions as early as possible.
In order to help facilitate this process, we welcome you to submit your contribution file to Fulton as early as you would like—even if it is several days before the pay date. FFA will hold your contribution files and time the processing of files to coordinate with your pay date. As a rule of thumb, we encourage everyone to submit contribution files by 1 p.m. the day before the pay date in order to ensure execution of contributions on the pay date.
In summary, submit your contribution information at the same time you complete your payroll processing, and have accurate information to provide to us. Doing so not only protects you and your firm but streamlines your overall payroll process.
The Internal Revenue Service recently issued a notice with updates to the CARES Act. The original CARES Act authorized the secretary of the treasury to expand the list of eligible individuals and to provide additional guidance. This notice does expand the definition of who is an “eligible individual” and clarifies several outstanding questions.
Of significant note, the expanded list of qualified individuals now includes those who are suffering financial hardship as a result of a spouse’s being laid off or working reduced hours due to the pandemic. The original list only included spousal accommodations for those whose spouses had actually been diagnosed with COVID-19.
Here are the additions to the list of qualified individuals:
- An individual who experiences a reduction in pay due to COVID-19 or who has a job offer rescinded or the start date for a job delayed due to COVID-19;
- An individual with a spouse or household member who is quarantined, furloughed or laid off, or whose work hours are reduced due to COVID-19; who is unable to work due to a lack of child care due to COVID-19; who experiences a reduction in pay due to COVID-19; or who has a job offer rescinded or the start date for a job delayed due to COVID-19; or
- An individual with a spouse or household member who owns or operates a business that closes or reduces operating hours due to COVID-19.
The IRS answered an open question related to loans. Loan balances that are included in a distribution to qualified individuals are afforded the favorable treatment of CARES Act withdrawals. They will not be subject to the 10% excise tax on early withdrawals, and the taxes due may be spread over three years. This is particularly helpful for participants who missed payments due prior to the March 27, 2020 effective date of the Act. Those loans may be in danger of default, as payments due prior to that date did not get the delayed payment relief. Instead of defaulting, qualified individuals will be able to have those loans distributed with favorable tax treatment.
However, if the plan offers loans and does not adopt the CARES Act, defaulted loans for non-terminated employees will be treated as deemed distributions, not actual distributions. The notice makes it clear that deemed distributions are not eligible for favorable tax treatment.
The notice also clarified that a plan does not have to adopt the CARES Act in order for a qualified individual to be eligible for favorable tax treatment. As such, if a participant suffers financial hardship after termination following business decisions related to the pandemic, that participant may take a distribution and be eligible for the favorable tax treatment, even if the plan does not adopt the Act. Those participants will be able to address this when they file their tax returns without any changes to plan terms or operations.
Separate from this notice about the CARES Act, the IRS issued guidance on rollovers of required minimum distributions (RMDs). For those who received RMDs earlier this year and would like to roll them over, thus avoiding taxation, the 60-day rollover period has been extended to August 31, 2020.
Five things your plan committee needs to know
We enjoyed the attached article greatly. It illuminates many points, but there are two that we found particularly relevant to our mission. The first is that having access to a retirement plan is one of the main contributors to retirement readiness confidence. The other is that folks who have prepared and planned are able to maintain their confidence during uncertain times. Read the entire article.